Financial Analysis

Note 3 Convertible Notes During August 2024, the Company issued convertible promissory notes in the aggregate principal amount of $3.1 million to 10 accredited investors, pursuant to a private note financing. The Notes were set to mature in June 2026 and did not carry any interest. The Notes were convertible into shares of the Companys common stock upon the occurrence of certain events. On March 25, 2025, the Company determined that a conversion event had occurred, and the Notes were converted at $3.50 per share, resulting in the issuance of an aggregate of 898,573 shares of common stock in exchange for $3.1 million in outstanding principal amount of Notes. Following the conversion, the Company has no further obligations under the converted Notes. The shares issued upon conversion are subject to piggyback registration rights previously granted to the investors. For the fiscal year ended June 30, 2025, the Company recorded amortization of discount on convertible notes of $715 thousand. The carrying amount of convertible notes, totaling $1.7 million, including unamortized debt discount of $1.5 million, was reclassed to equity during the quarter ended March 31, 2025. …

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Note 5 Stock-Based Compensation The Companys 2021 Equity Incentive Plan (the 2021 Plan) provides for the issuance of shares of common stock pursuant to awards of stock options, restricted stock awards, restricted stock units, stock appreciation rights, performance awards, cash awards, and stock bonus awards. The number of shares reserved for issuance under the 2021 Plan is eligible to increase automatically on January 1 of each year through 2031 by an additional number of shares equal to the lesser of (x) 5% of the outstanding number of shares of the Companys common stock (on a fully diluted basis) on the immediately preceding December 31, and (y) such lower number as may be determined by the Compensation Committee of the Companys Board of Directors. As of June 30, 2026, a total of 1,989,119 shares were subject to outstanding awards under the 2021 Plan and 1,727,085 shares remained available for issuance pursuant to future awards. Restricted Stock Awards Restricted Stock Awards (RSAs) are grants of shares of the Companys common stock that vest in accordance with terms and conditions established by the Companys Board of Directors. Recipients of RSAs generally will have voting and dividend rights with respect to such shares upon grant without regard to vesting, unless the RSA agreement provides otherwise. Shares of restricted stock that do not vest are subject to forfeiture. The Company has entered into various consulting agreements that involved the issuance of common stock in …

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Note 8 Income Taxes The Company reported a pre-tax loss of $9.2 million and $3.0 million for the years ended June 30, 2026 and 2025, respectively. There is no federal or state provision for income taxes because the Company has incurred operating losses since inception and is in a full valuation allowance position. Deferred income taxes reflect the net tax effects primarily of the net operating losses and the temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. As of June 30, 2026, the Company has approximately $17.7 million in federal and $19.0 million of state net operating loss carryforwards available to offset future taxable income. Deferred tax assets are measured using the applicable combined federal and state statutory income tax rates expected to apply when the related temporary differences reverse. For federal income tax purposes, the U.S. statutory corporate income tax rate is 21%, as established by the Tax Cuts and Jobs Act of 2017. The applicable California state income tax rate, net of the federal tax benefit, is approximately 7%, resulting in a combined statutory tax rate of approximately 28%. The tax effect of deferred tax assets and liabilities at this combined statutory rate is offset by changes in the valuation allowance recorded against deferred tax assets, as applicable. …

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Note 6 Operating Leases The Company entered into an amendment dated November 20, 2025, which modified its existing lease originally executed on February 22, 2021, for a facility in Goleta, California, reflecting the exercise of one of the two original sixty-month extension options and extending the lease term for an additional five years from April 1, 2026 through March 31, 2031. On April 1, 2026, the Company concluded that exercise of the second of the two available lease extension options was reasonably certain. Accordingly, the Company remeasured the related ROU assets and lease liability, and recognized the net present value of the additional lease payments, resulting in an increase of $739 thousand to the ROU asset and $839 thousand to the lease liability as of April 1, 2026, with the difference from prior amortization absorbed into the ROU asset. The Company is a party to a 5-year operating lease for an office in Goleta, California through September 21, 2030, with total lease payments of $303 thousand. The Company recorded the net present value of $274 thousand for both the ROU asset and lease liability on September 5, 2025. The following table presents maturities of operating lease liabilities on an undiscounted basis as of June 30, 2026 ($ in thousands): Years ending June 30, 2027 $ 259 2028 266 2029 238 2030 280 2031 237 Thereafter 1,167 Total 2,447 Less: interest (425 ) Total lease liability - operating 2,022 Less: lease liability - operating, current portion 180 Le …

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Recent Accounting Pronouncements under Evaluation In July 2025, the FASB issued Accounting Standards Update (ASU) 2025-05, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets . This ASU provides a practical expedient to assume that conditions as of the balance sheet date remain unchanged over the life of the asset when estimating expected credit losses for current accounts receivable and current contract assets arising from transactions accounted for under Topic 606. This guidance is effective for annual reporting periods beginning after December 15, 2025, and for interim periods within those annual reporting periods, with early adoption permitted. The amendments in ASU 2025-05 should be applied prospectively. The Company is currently evaluating the impact of this new standard on its consolidated financial statements, however the adoption is not expected to have a material impact on the consolidated financial statements. In November 2024, the FASB issued ASU. 2024-03, Disaggregation of Income Statement Expenses (DISE) . The ASU requires additional disclosure regarding specific types of expenses included in the income statement. This guidance applies to all public business entities and is effective for annual reporting periods beginning after December 15, 2026 and interim reporting periods within annual reporting periods beginning after December 15, 2027. The requirements will be applied prospectively with …

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Note 2 Summary of Significant Accounting Policies Basis of Presentation The accompanying consolidated financial statements have been presented in accordance with U.S. generally accepted accounting principles (GAAP). All significant intercompany balances and transactions are eliminated in consolidation. There were no significant intercompany balances or transactions during the fiscal years ended June 30, 2026 and 2025. The summary of significant accounting policies presented below is designed to assist in understanding the Companys financial statements. Such financial statements and accompanying notes are the representations of the Companys management, who is responsible for the Companys integrity and objectivity. Use of Estimates and Assumptions The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company bases its estimates and assumptions on current facts, historical experience, and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. The actual results experienced by the Company may differ materially and adversely from the Companys estimates. To the extent there are material differences between …

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Note 4 Stockholders Equity Authorized Shares The Companys certificate of incorporation authorizes the issuance of two classes of shares of capital stock. The total number of shares that this corporation is authorized to issue is 50,000,000 shares of $0.0001 par value common stock and 10,000,000 of $0.0001 par value preferred stock. No preferred shares were issued or outstanding as of June 30, 2026. Registration Rights Agreement The Company is party to a registration rights agreement pursuant to which it has filed a registration statement on Form S-1 with the SEC, which was declared effective on March 26, 2025 and converted into a Form S-3 pursuant to a post-effective amendment effective February 6, 2026. The agreement provides for certain liquidated damages upon the occurrence of certain events restricting the holders ability to trade the common stock as result of the Companys failure to maintain their registration for resale or trading suspensions or halts. The liquidated damages are capped at eight percent of the shares covered by the registration rights agreement. The registration statement initially covered the resale of 11,010,002 shares. The Company expects to continue to satisfy its obligations under the registration rights agreement and does not expect to pay any damages pursuant to this agreement. Therefore, no liability has been recorded. Public Offerings of Common Stock In March 2025, the Company sold an aggregate of 2,628,571 shares of its common stock in an under …

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Note 9 Subsequent Event Subsequent to June 30, 2026, on August 24, 2026, the Company amended its existing lease agreement to expand the leased premises at 150 Catilian Dr., Goleta CA, 93117 by approximately 3,400 square feet. The additional space is expected to be available for use beginning October 1, 2026. The lease amendment will result in additional lease payments of approximately $437 thousand over the lease term of 60 months. …

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